Obama wielded presidential power in an executive order, seizing assets and blocking any property in the United States belonging to Gaddafi or his four sons.
In a statement, Obama said the measures were specifically targeted against the Gaddafi government and his family but not the material wealth of the Libyan people themselves.
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"By any measure, Muammar Gaddafi's government has violated international norms and common decency and must be held accountable," Obama said in a statement.
"These sanctions therefore target the Gaddafi government, while protecting the assets that belong to the people of Libya."
"The Libyan government's continued violation of human rights, brutalization of its people, and outrageous threats have rightly drawn the strong and broad condemnation of the international community," Obama said.
"We will stand steadfastly with the Libyan people in their demand for universal rights, and a government that is responsive to their aspirations. Their human dignity cannot be denied."
Obama slapped the sanctions on Libya after a flight carrying more American evacuees left the violence-torn North African country, soon after a ferry carrying nearly 300 Americans and other foreigners arrived in Malta from Tripoli.
A US official, speaking on condition of anonymity, said the sanctions were framed specifically to encourage members of the Libyan government to defect from the inner core of what is left of Gaddafi's power base.
Obama said in the executive order that there was a "serious risk" that Libyan state assets would be misappropriated by Gaddafi, members of his government and his family.
He said that the "prolonged attacks" and increased numbers of Libyans seeking refuge abroad posed a "serious risk" to the country's stability.
